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Tag Archives: earnings

HCLP Earnings Are Out

I’ve been keeping up on earnings for my companies as they post, but I haven’t quite had the spare time to translate everything I’m thinking into posts. It’s been a rapid series of reports and not quite enough time to write out my thoughts on the subject.

Rest assured, if there had been any big deviations from the plans, I’d tell you.

As HCLP has been a particularly precious position and given how closely I’m tracking, it merits special consideration.

The company guided in on revenues and missed on earnings (depending on who you ask). But neither of that matters. This is what is actually important:

The company continues to see rapid increases in demand for product. Tonight, in addition to reporting earnings, they also announced another amended contract that, and I quote, “…significantly increases the annual committed volumes under the agreement signed in March and extends the term by two more years.”

No, you’re not seeing things. HCLP just amended this same contract two months ago. I guess realities on the ground have already changed so much that they were afforded the luxury of re-renegotiating.

I look at the last press release from March, where they announced the original amendment to the Weatherford contract, which was to be in place for a further three years, at a specified (then higher) volume of sand, for a higher price.

So two months later, that contract has become a five year contract for even higher volumes.

Yes I do like the sound of that. You can bank on these developments flowing through the natural gas producers and well servicing sectors soon enough. High demand for sand means high demand for gas.

Natural gas inventory is at eleven year lows and there is lingering concern that adverse weather this year could put real pressure on refilling storage. This would translate to pressure on users for higher prices and alleviate much of the residual pessimism surrounding natural gas from 2011.

The natural gas game is on.

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BAS Earnings After The Close

Basic Energy Services, one of my most favorite positions, is reporting Q1 earnings after the close.

The stock is up ~80% since the start of the year. Accordingly, it is being afforded a little break today, while longs lock in some gains.

Cain Hammond Thaler will not be among the profiteers, as he is resting self-assuredly in his 9th floor office, indifferent to the prospect of a BAS sell off. Cocky, even.

Natural gas spot pricing is back to $4.70. That is a huge rebound from the mighty flush out that first put the natural gas sector on ice. Since which time, BAS and strengthened their corporate entity, engaging in buy outs and solidifying the balance sheet.

Let’s see what they can do.

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I Bought More HCLP, Because They Grew 218%

Look this is quite straightforward. This partnership is trading at a paltry 14X income and just tripled in size inside of one year.

And a cursory glance immediately revealed another 15% growth just sitting in the pipeline; unaccounted for as of yet. As in, without trying – whammy – have another 15% growth guy.

“Why yes, I believe I will, thank you.”

Just having this trade like the high growth play it is, for 20X income or more, sends it to $50. Add in the 15% growth I’m seeing (and will detail later) and you’re at $59. And that’s before the company even does anything.

This thing is easily going above $60 for a partnership unit. That’s 66% higher from where it’s at right now.

My cash positions rests above 30%.

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Prices For Cameco’s Uranium Went Up…

Read this closely:

On an adjusted basis, our earnings this quarter were $61 million ($0.15 per share diluted) compared to $31 million ($0.08 per share diluted) (see non-IFRS measure) in the second quarter of 2012, mainly due to:

•higher earnings from our uranium business based on higher realized prices and increased sales volumes

…(other reasons listed)

This may be all I needed to see. The uranium market, being a low volume, old school brokerage operation, is an insane place. Opague as concrete, and getting quotes isn’t much different than trying to swim through said material.

I have been a little concerned, since uranium prices in the main broker-dealer I follow have just been collapsing.

But URA seems to have bottomed, and indicated prices as increasing. So what’s real?

Well, I can assure you, I don’t care what “uranium prices” are “really” doing. Because Cameco is living in CCJ land, where prices are higher. Lower uranium bids seem to be predominantly an phenomenon effecting small, POS miners.

Sure, you can buy long term uranium contracts really cheap from a URRE, a UEC, or a USU. You can also take on the very real counterparty risk that they won’t be around in another two years to make good on those contracts.

But if you don’t feel like taking long gambles on companies scrambling into deadend, horrible supply deals to stave off bankruptcy, you’re going to pay real rates to CCJ.

I still need to look through their filing closely – there were a few things that stuck out to me briefly as mild concerns, when I did a once over. They still have a ton of currency hedges in place, that probably expose them to all sorts of potential losses, and I’m curious about how the NUKEM deal is working out.

Also, the company has promised to cut expenses by 10%. This is just one of many elements that bares scrutiny and inspection.

But the fact that Cameco could sell uranium for higher prices in this market is astounding.

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Setting Myself For A RGR Disappointment

Mentally, I must ready myself to see RGR miss on earnings and crater back towards $40. Statewide background checks are way down, save for the most liberal, anti-gun cities, where terrified freedom lovers accumulate weapons at an alarming rate.

Most of the energy to buy weapons was exhausted in the first three months of the year. You can only buy so many firearms.

However, I am not prepared to sell my position, exclusively because of the minute details of my personal trading and positioning.

I already made a boat load of money in RGR, first last November when I hit a rally then sold before December. Then, I repurchased around $40. And since then I’ve been buying and selling the ranges, always profitably. I’m currently sitting on just half the position size I started with (sold north of $50 I do believe), and at least a 20% unrealized profit baked into those shares…not counting all the realized gains and dividends.

So no, it doesn’t make sense for me to sell out.

RGR’s value depends a lot on where things go from here. At latest sales, RGR is cheap – but are they maintaining those levels with background checks slowing down? At 2012 levels, the stock is a little hot, but not too bad. And if sales settle somewhere in between, I’d say we’re just fine.

But if sales start going below 2012 levels, things get interesting. I’m counting on first time gun buyers getting the itch; you never stop at just one.

Still, I’m not going to be taking any form of wash on this; I’ve come way too far. I’ll sell if it gets to $44, lock in the last smattering of shares up +10%, and walk away up big on one of the most profitable 6 month runs in a single name I’ve had since APC.

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Naturally AEC Gets Disemboweled On Earnings Miss

If you’ve been following my mutifamily trade for any length of time, you already know that analysts absolutely “hate, hate, hate” this stock. They do not respect one Mr. Jeffrey I. Friedman, and work tirelessly to dethrone him.

AEC had a small miss on earnings and came in under expected revenue. For this, the company has been impaled by 3%, and the entire REIT space appears to be selling off hard.

I find the revenue, earnings, and FFO concerns to be dismissible for the moment at least. How many of these analysts were paying attention to the FFO blowout to begin with? Look at a long term chart of FFO growth in the multifamily space and then understand that what people are afraid of amounts to a zit on a rhino’s butt cheek.

It makes perfect sense that at this exact moment in time, it would have been hard for multifamily real estate to continue the 5% revenue growth the sector had been enjoying. Recall that FFO for AEC is up 30% for the first 6 months year over year between 2013 and 2012. That is gargantuan, and until now that cash flow has been directed continuously into reinvestment in the business.

Management at both AEC and CLP (and I presume other equally reputably managed multifamily REITs) took a very well announced break in the pace of acquisitions beginning sometime last year. They found that multifamily units had stopped selling at the rock bottom prices and became concerned about conditions that may impair access to financing. In short, they did what management is supposed to do; they applied the brakes, and got down to the business of actually using their brains and planning ahead.

The last 6 months has seen these companies redirect their cash flow away from reinvestment and into early debt extinguishment and balance sheet improvement. Both AEC and CLP have seen their credit scores upgraded inside of the last year. Once the easy money from financing activities is taken off the table, we’ll likely see a resumption of that high paced revenue growth we saw before.

As demand for rentals remains strong, and the market seems to be easily absorbing rates increasing (recent rates have been increasing at an annual rate of 3.2%), we may see a resumed push into asset acquisitions. AEC announced another purchase this month just before filing. If prices are not good enough or desirable locations can’t be found, then land development will take off.

If demand for new apartments starts to slacken or the company feels that new assets would not serve the network of apartment communities advantageously, then the bounty of FFO that has been built up over the last three years will be focused into a dividend yield hike that showers patient shareholders with cash.

The very large body of free cash flow from operations that has been painstakingly assembled here provides shareholders with a bounty of options. What confuses me, with AEC, is that their FFO is no less desirable, yet priced at a discount to the rest of the sector.

Consider CLP – I was buying them at $17-18 a share, at the same time I was buying AEC for $14-15. For all purposes, they are the same company. I have watched as AEC and CLP mirror each other’s moves practically perfectly; acquiring properties at the same time, paying off debt at the same time, sitting on their hands at the same time, engaging in strategic sales and expense reduction at the same time.

They are nearly identical in every aspect, yet over the last two and a half years, CLP has run to $25 a share, whereas AEC has been squashed repeatedly in its attempts to rally, today trading for $16.

At this discount, I am left to assume that AEC is a prime takeover target. CLP was recently merged into MAA. The sector is primed for some consolidation, with all this money sloshing around. Maybe AEC can get bought out too. I must trust that the great Mr. Jeffrey I. Friedman will do what is in the best interest of us shareholders. He has faithfully adhered to that standard so far.

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